Sovereign Gold Bond Scheme was launched by the Central Govt in November 2015, under Gold Monetisation Program.
Sovereign Gold Bonds Scheme is an indirect way of investing in Gold. Instead of buying physical gold, investors can buy gold in paper form through Sovereign Gold Bonds. These bonds track the price of gold, plus an extra interest amount is paid on the investment.
The Reserve Bank of India, in consultation with the Government of India, has decided to launch latest Sovereign Gold Bonds Issues – Series I to Series X (FY 2019-20). The SGBs will be issued every month from June 2019 to October 2019 and from December to March 2019.
Latest Sovereign Gold Bonds FY 2019-20 Series IX (February 2020) : Key Features
The applications for the latest ‘Sovereign Gold Bonds Scheme’ will be accepted through banks, Stock Holding Corporation of India Limited (SHCIL), designated post office branches and stock exchanges (BSE & NSE).
Below are the key features of Sovereign Gold Bonds Scheme September 2019 (Series V & VI) ;
- Latest Gold Bond Issue Subscription dates : 7th to 11th October 2019.
- Golds Bonds Issuance & FY 2019-20 Calendar : The Sovereign Gold Bonds will be issued every month from June 2019 to March 2019 (except in Nov) as per the calendar specified below ;
| S. No. | Tranche | Date of Subscription | Date of Issuance |
| 1 | 2019-20 Series V | October 07-11, 2019 | October 15, 2019 |
| 2 | 2019-20 Series VI | October 21-25, 2019 | October 30, 2019 |
| 3 | 2019-20 Series VII | December 02–06, 2019 | December 10, 2019 |
| 4 | 2019-20 Series VIII | January 13-17, 2020 | January 21, 2020 |
| 5 | 2019-20 Series IX | February 03-07, 2020 | February 11, 2020 |
| 6 | 2019-20 Series X | March 02-06, 2020 | March 11, 2020 |
- Public Issue Price : Price of Bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited for the last 3 working days of the week preceding the subscription period. The issue price of the Gold Bonds will be Rs 50 per gram less for those who subscribe online and pay through digital mode.
- The Issue Price of the Bond during this subscription period (Feb 3 – 7) shall be Rs 4,070 per gram with Settlement date Feb 11, 2020.
- The Government of India in consultation with the Reserve Bank of India has decided to allow discount of Rs. 50 (Rupees Fifty only) per gram from the issue price to those investors who apply online and the payment is made through Digital Mode. For such investors the issue price of Gold Bond will be Rs 4,020 per gram of gold.
- Who can buy Gold bonds? : The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities and charitable institutions.
- Duration of Bonds : The tenor (tenure) of the Bond will be for a period of 8 years with an exit option from 5th year onwards. Gold bonds shall be repayable on the expiration of eight years from the date of the issue and premature redemption is permitted after 5th, 6th and 7th years from the date of issue of SGB, to be exercised on the interest payment dates.
- Minimum investment Size : Minimum permissible investment will be 1 unit (i.e. 1 gram of gold.)
- Maximum allowed investment : The maximum amount subscribed by an entity or an individual investor will not be more than 4 kg per financial year (April-March). A self-declaration to this effect will be obtained. In case of joint holding, the investment limit of 4 kg will be applied to the first applicant only. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchase from the Secondary Market. In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.
- Interest rate on Gold Bonds : The investors will be compensated at a fixed rate of 2.5% per annum (calculated on Face value and not on market value) payable semi-annually on the initial value of investment. Interest will be credited directly in to the account mentioned in the application form or in the Account linked with the Demat a/c. Post Maturity, Interest is not payable.(It is mandatory for the investors to provide bank account details to facilitate payment of interest /maturity value.)
- Where to buy Gold Bonds ? : Gold Bonds can now be purchased from NSE and BSE, besides all Bank branches, select Post Offices and the Stock Holding Corporation of India Limited (SHCIL) and as may be notified, either directly or through agents.
- Payment mode : Payment for the Bonds will be through cash payment (upto a maximum of Rs. 20,000) or demand draft or cheque or electronic banking.
- The investors will be issued a Holding Certificate. The Bonds are eligible for conversion into demat form.
- KYC Documentation : Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
- Transfer of Bonds : The bond can be gifted/transferable to a relative/friend/anybody.
- Redemption Price : The redemption price will be in Indian Rupees based on previous 3 working days simple average of closing price of gold of 999 purity published by IBJA (Indian Bullion Jewelers Association).
- Collateral : Gold Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
- Liquidity & Tradability : Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
- Nomination Facility : Please note that nomination facility is available to a Sole Holder or all the joint holders (investors) of an SGB. A sole holder or all the joint holders may nominate maximum of two nominees to the rights of the bonds. The Nomination facility is not available in case the investment is on behalf of minor. The nomination can be altered by registering a fresh nomination.
Application form for Sovereign Gold Bonds Scheme Series FY 2019-20
Click on the below image to download Gold Bonds Application form for Series I to X of FY 2019-20.
Investment in Sovereign Golds Bonds & Tax Implications
- The interest payments on Gold Bonds shall be taxable as per the provision of Income Tax Act.
- Gold bonds will be exempted from capital gains (LTCG) tax at the time of redemption. In case, you hold the bonds till the maturity date and if you make any long term capital gains when redeeming your gold bonds, there will not be any capital gain taxes on the profit you make.
- However, kindly note that Long term capital gains arising to any person on transfer of SGB will continue to be taxable and eligible for indexation benefits.
- TDS is not applicable on the bonds. However, it is the responsibility of the bond holder to comply with the tax laws.
Related Article : ‘Different Asset classes have different Tax implications – How Returns are taxed?‘)
Should you invest in Gold Bonds?
The main benefit of Gold bonds is, you may get capital appreciation (if gold prices increase) plus ‘interest payment’ on bonds. If you buy physical gold or Gold ETFs (which also track gold prices), you may get capital appreciation only. Neither physical gold, gold mutual funds nor gold ETFs pay any interest rate. But, note that the interest payment is on the Face value of Bond and not on the bond’s market value.
Related Article – “How to buy Gold at lesser price than the prevailing Market Price?“
If you buy Gold mutual funds or Gold ETFs, you have to bear ‘fund management charges’. In case of Gold bonds, no charges are applicable. Also, like gold funds and ETFs, you don’t have to worry about storage of physical gold or pay locker fees in case of Gold Bonds.
The biggest disadvantage of Gold bonds is lack of liquidity. The lock-in period is 5 years. Though you can sell the bonds on stock exchanges, the liquidity is very tight.
If there are uncertainties across the globe, trade-wars between the Nations (ex : US Vs China Trade war) and if the geo-political risks are high generally, the Gold prices tend to increase. Investors tend to take refuge in assets like Gold (for example during 2008 financial market crash). Any furhter interest rate cuts by the USA in the near to medium term can be positive to Gold.
But, do not expect abnormal returns from your investments in Gold. Only the 2.5% interest rate is guaranteed on Gold bonds and not the capital appreciation.
If you HAVE to invest a portion of your savings in Gold for long-term (for consumption like daughter’s marriage & not as an investment), Gold bonds outscore the Gold funds / physical gold and can be a preferred mode of investing in Gold. (Related Article: ‘Best Gold buying options‘)
As discussed, the biggest disadvantage of Gold bonds is lack of liquidity. The lock-in period is 5 years. Though you can sell the bonds on stock exchanges, the liquidity is very tight and that is the reason why you may find previous SGBs being offered at Discounted price. So, check the secondary market prices before you subscribe to public issue of Gold Bonds.
(You may visit this NSE Link to track the latest SGB Prices in Secondary Market.)
Personally, I have never invested in Gold. The extent of volatility of Gold prices in the recent years is more than that of Equity oriented securities/funds. So, the risk-reward ratio may not be favorable for investing in Gold.
You may visit this NSE Link to track the latest Gold Bonds Market Prices & movements.
(Post first published on : 04-July-2019)
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I think Sovereign Gold Bonds is the perfect replacement for physical gold. Even if the interest is low it is way better than an option that gives zero interest. Since there is a trade war going on between the US and China I think gold investments can become very helpful in the near future.